Making insurance markets work for the poor: microinsurancemicroinsurance policypolicy,, rregula�egula� on and supersupervisionvision South Africa case study Version 6 (12 January 2009): Final This document presents the findings from the South African component of a five-country case study on the role of regulation in the development of microinsurance markets. The objectives of this project were to map the experience in a sample of five developing countries (Colombia, India, the Philippines, South Africa and Uganda) where microinsurance products have evolved and to consider the influence that policy, regulation and supervision on the development of these markets. From this evidence base, cross-country lessons were extracted that seek to offer guidance to policymakers, regulators and supervisors who are looking to support the development of microinsurance in their jurisdiction. It must be emphasized that these findings do not provide an easy recipe for developing microinsurance but only identifies some of the key issues that need to be considered. In fact, the findings emphasize the need for a comprehensive approach informed by and tailored to domestic conditions and adjusted continuously as the environment evolves. The project was majority funded by the Canadian International Development Research Centre (www.idrc.ca) and the Bill and Melinda Gates Foundation (www.gatesfoundation.org) along with funding and technical support from the South Africa-based FinMark Trust (www.finmarktrust.org.za)1 and the German GTZ2 (www.gtz.de) and BMZ3 (www.bmz.de). FinMark Trust was contracted to design and manage the project. Together with representatives of the IAIS, the Microinsurance Centre and the International Cooperative and Mutual Insurance Federation (ICMIF) the funders are represented on an advisory committee overseeing the study. The project was undertaken under the guidance of the International Association of Insurance Supervisors (IAIS) and Consultative Group to Assist the Poor (CGAP) Joint Working Group on Microinsurance. The South African case study was conducted by Genesis Analytics (www.genesis- analytics.com). Authors: Hennie Bester Doubell Chamberlain Simon Hendrie 1 Funded by the UK Department for International Development – DFID. 2 Deutsche Gesellschaft für Technische Zusammenarbeit GmbH. 3 Bundesministerium für Wirstschaftliche Zusammenarbeit und Entwicklung - Federal Ministry of Economic Cooperation and Development Tim Hobden Christine Hougaard Anja Smith We would like to acknowledge the following funders for making this project possible: International Development Research Centre (IDRC), Canada Bill & Melinda Gates Foundation FinMark Trust, South Africa Deutsche Gesellschaft für Technische Zusammenarbeit GmbH (GTZ) and Bundesministerium für Wirstschaftliche Zusammenarbeit und Entwicklung (BMZ), Germany We would also like to thank the members of the advisory committee for their comments on the draft document and their engagement and guidance throughout the study: Jeremy Leach (FinMark Trust) Arup Chatterjee (IAIS) Craig Churchill (ILO) Tammy Durbin (Bill & Melinda Gates Foundation) Brigitte Klein (GTZ) Michael McCord (Microinsurance Centre) Martha Melesse (IDRC) Craig Thorburn (World Bank) Sabir Patel (ICMIF) Martina Wiedmaier-Pfister (GTZ) 2 Table of Contents Table of Contents .......................................................................................................................3 List of figures ..............................................................................................................................4 List of tables ...............................................................................................................................4 List of boxes ...............................................................................................................................4 Executive Summary ...................................................................................................................6 1. Introduction ..................................................................................................................... 12 2. Analytical framework ...................................................................................................... 14 2.1. Methodological approach ....................................................................................... 14 2.2. Project scope ........................................................................................................... 15 3. The insurance regulatory framework in South Africa ..................................................... 15 3.1. Options for microinsurance provision ..................................................................... 16 3.2. Regulatory scheme .................................................................................................. 18 3.2.1. The Long-term and Short-term Insurance Acts ............................................... 20 4. The micro-insurance market in South Africa ................................................................... 25 4.1. Products & take-up .................................................................................................. 26 4.2. Players ..................................................................................................................... 41 4.3. Distribution .............................................................................................................. 47 4.4. Conclusion: key market features ............................................................................. 52 5. Drivers of the micro-insurance market ........................................................................... 53 5.1. Non-regulatory drivers of market characteristics ................................................... 53 5.2. Regulatory drivers of market characteristics .......................................................... 56 6. Summary and conclusions ............................................................................................... 65 Bibliography ......................................................................................................................... 70 Meeting list .......................................................................................................................... 74 List of abbreviations ............................................................................................................ 75 Appendix 1: Analytical framework ...................................................................................... 76 7. Product case studies: short-term products ..................................................................... 88 Appendix 2: Cre8 and iKhaya Protector .............................................................................. 88 3 Appendix 3: Santam Multihome .......................................................................................... 89 Appendix 4: Legalwise legal insurance ................................................................................ 90 8. Product case studies: long-term products ...................................................................... 91 Appendix 5: Opportunity International’s Micro-Insurance Agency .................................... 91 Appendix 6: Metropolitan’s retail enhancement initiative ................................................. 92 Appendix 7: Standard Bank Insurance................................................................................. 93 Appendix 8: Discovery Life Pre-Paid Funeral Plan ............................................................... 95 Appendix 9: Hollard insurance sold to Edgars and Jet account holders ............................. 97 Appendix 10: Pep and Hollard Insurance ............................................................................ 99 Appendix 11: “My funeral card” insurance underwritten by Hollard ............................... 101 Appendix 12: The Small Enterprise Foundation ................................................................ 102 Appendix 13: Shoprite/HTG Life funeral policies .............................................................. 104 Appendix 14: Ellerine Holdings credit life insurance ......................................................... 106 List of figures Figure 1. Regulatory options for providing micro-insurance .................................................. 18 Figure 2. Insurance uptake across LSM groups. ...................................................................... 27 Figure 3. Breakdown of insurance usage among LSM1-5. ...................................................... 28 Figure 4. The insurance regulatory house ............................................................................... 57 Figure 5. Financial inclusion framework .................................................................................. 76 Figure 6. Insurance value chain ............................................................................................... 79 Figure 7. The insurance regulatory scheme ............................................................................ 85 List of tables Table 1. Short-term and long-term insurance market shares, 2005 ....................................... 42 Table 2: Top assistance business market players. ................................................................... 43 List of boxes Box 1. Key features of the micro-insurance market in South Africa ....................................... 26 Box 2. Credit